Tech stocks fall as Altera warns

Nortel says it will miss Q1 profit target by a penny

By

MartinCej

NEW YORK (CBS.MW) -- Technology stocks fell Wednesday after Altera warned that fourth-quarter revenue would be at the low end of forecasts and Nortel Networks said its earnings per share from operations would be one penny shy of analysts' average expectations in the first quarter.

The decline was slowed, however, as some investors were convinced that many stocks have already fallen further than is warranted by the outlook for profit and revenue growth.

Evidence that U.S. manufacturing slowed in October to its calmest pace since December 1998 failed to deter buyers from snapping up some technology shares at near 12-month lows.

Semiconductor stocks and chip component makers led the early decline, while networking and fiber-optic stocks gave up a portion of yesterday's rally. The Nasdaq Composite Index soared 6 percent Tuesday, though it ended October down 8 percent.

The Nasdaq
$COMPQ
fell 36.23 points, or 1.1 percent, at 3,333.40 after falling as much as 2.4 percent in early trading. Technology stock investors should take note that a significant portion of the early slide was due to shares of telecommunications company WorldCom, which warned that its fourth-quarter earnings will fall short of estimates. See full story.

Shares of Brampton, Ontario-based Nortel
NT
fell $1.50 to $44 after the fiber-optics and networking company said that it expects earnings per share from operations to be 16 cents in the first quarter of 2001, which is one penny short of the average estimate of 21 analysts surveyed by First Call.

The company also said that it expects fourth-quarter 2000 revenue in the range of $8.5 billion to $8.8 billion with earnings per share at 26 cents a share, which matches previous expectations. Looking to the first quarter of 2001, Nortel anticipates revenue between $8.1 billion and $8.3 billion.

Through 2001, Nortel said it sees revenue and earnings growing at a rate between 30 to 35 percent, outpacing estimates of 20 percent growth for the entire industry.

Nortel shares are down about 30 percent since the company fell short of third-quarter revenue expectations early last week. Some investors and analysts also fretted that the company's optical business grew 90 percent in the period compared with the 150 percent pace of the second quarter.

Nortel reiterated that it expects its revenue from its optical Internet business to grow "in excess of 125 percent in 2000" and to exceed $10 billion.

Analysts' "expectations got ahead of themselves," said Jim Thorne, a fund manager at Toronto-based Caldwell Securities. Thorne said Caldwell has purchased Nortel shares in recent days. "It's a buy at these levels."

Altera
ALTR, -0.57%
shares led a decline by semiconductor makers after the programmable logic device supplier said late Tuesday that October resales were "slightly below expectations," and warned that fourth-quarter sequential revenue growth would be at the low end of the previously-expected 12 to 15 percent range. Altera shares fell $8.38 to $32.56, a slide of 21 percent.

Intel's early gains were underpinned by Lehman Brothers analyst Dan Niles, who said he does not expect Intel to lower fourth-quarter guidance, despite what he called "rumors to the contrary."

Niles said he believes both the company's revenue and growth margins "are within the range of guidance" given in its third-quarter earnings release, and added he was "comfortable" with fourth-quarter estimates.

Investors digested more evidence that the U.S. economy, the world's largest, is slowing. The National Association of Purchasing Management said its monthly index fell to 48.3 percent in October from 49.9 percent in September.

Readings below 50 percent show cooling in the factory sector. It's the lowest reading since December 1998.The consensus estimate was for a dip to 49.6 percent, according to a CBS.MarketWatch.com survey.

Wednesday's report compounds a report Tuesday of waning consumer confidence and follows a report Friday that the U.S. economy slowed to a growth pace of 2.7 percent in the third-quarter, less than half the pace of the second quarter.

Bucking the general trend among economists, Bank of Montreal released a report today arguing that the Federal Reserve will leave interest rates unchanged in 2000 but will hoist rates by 1 percentage point in 2001 to rein inflation. See full story.

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